News Column

Fitch Affirms Basin Electric Power Cooperative (ND) Commercial Paper Programs at 'F1'

February 12, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'F1' ratings on Basin Electric Power Cooperative's (Basin) two commercial paper programs:

--$129,925,000Mercer County, North Dakota Pollution Control Refunding Revenue Notes, 2009 Commercial Paper Series One (Basin Electric Power Cooperative-Antelope Valley Unit 1 and Common Facilities) (tax-exempt);

--$500,000,000 commercial paper (CP) notes (taxable).

SECURITY

Basin's tax-exempt and taxable CP notes are general unsecured obligations of the cooperative.

KEY RATING DRIVERS

SUFFICIENT LIQUIDITY AND LONG-TERM RATING: The 'F1' short-term ratings broadly reflect Basin's sufficient internal liquidity sources, as well as its 'A+' long-term rating.

REVOLVERS PROVIDE GOOD SUPPORT: Basin's total sources of liquidity (excluding funds for cushion of credit) provided a satisfactory 2.17x of potential needs at Dec. 31, 2013. The cooperative had $335 million of cash and cash equivalents and adequately-sized revolving credit facilities to support its tax-exempt and taxable CP programs ($130 million and $500 million, respectively). An additional $400 million facility is available for general corporate purposes.

LIQUIDATION PROCEDURE PLAN NOT CODIFIED: While various bank authorizations and incumbency certificates are in place as a consequence of the cooperative's related CP agreements, Basin has not put together a formal liquidation procedures plan as specified in Fitch's criteria. Management intends to provide one in the near future.

SOUND LONG-TERM CREDIT CHARACTERISTICS: Basin's electric operations provide the cooperative with overall financial stability, and its low wholesale rates provide flexibility to generate additional revenues. Basin's for-profit synthetic natural gas (SNG) subsidiary tends to produce more volatile results, reflecting market prices for natural gas and other commodity-based products. As a result, when financial budgets and forecasts are prepared by Basin, management does not assume dividends from the synthetic gas operation.

RATING SENSITIVITIES

BALANCE SHEET IMPORTANCE: The maintenance of Basin's sound balance sheet resources will continue to be an important rating consideration for the reasons mentioned above.

ABILITY TO MANAGE CAPITAL PROGRAM: Basin and its members are actively engaged in meeting regional electric growth demands related to development of the Bakken shale formation. Successful implementation of this program and prudent financing strategies are important.

CREDIT PROFILE

AMPLE LIQUIDITY

Basin's sufficient internal liquidity and 'A+' long-term rating support the 'F1' short-term ratings on the cooperative's tax-exempt and taxable CP programs. Cash and investments totaled about $335 million at Dec. 31, 2013, and were further supported by two revolving credit facilities internally designed for each of its programs.

A $130 million, five-year credit facility provided by National Rural Utilities Cooperative Finance Corporation (not rated by Fitch) expires in March 2018. A separate $500 million, syndicated credit facility of six banks led by JP Morgan (rated 'A+/F1') is in place through October 2016.

An additional $400 million facility is in place until November 2018 and is available for general corporate purposes.

Based on Basin's long-term financial forecast, these funds should be more than sufficient to support the CP programs and fund needed capital requirements in advance of periodic capital market funding.

NEW GENERATION AND TRANSMISSION PROJECTS PLANNED

Basin's member systems serve 2.8 million consumers and its members are active in serving oil and energy development in the Bakken formation, which covers parts of western North Dakota and eastern Montana. Basin has been actively monitoring the growth and planning for generation and transmission needs associated with the rapidly increasing loads of its member systems. In 2009, Basin and its members planned for 400 MW of new load to develop in this area. The cooperative is now planning for loads to grow by an additional 1,000 MW by 2025, over and above the earlier forecast.

FINANCIAL RESULTS SATISFACTORY

Preliminary results for the 12 months ended Dec. 31, 2013 showed financial performance being better than expected, with good performance in the electric business and particular strength in the coal production operation. Margins for interest (MFI) for 2013 equaled 1.36x, which compares with a target of 1.30x and a covenant requirement of 1.10x. Figures for the first month of the new calendar year (January) were better than budgeted, helped by the cold weather.

Additional information is available at www.fitchratings.com.

The rating action was informed by information from Fitch's Revenue-Supported Rating Criteria and U.S. Public Power Rating Criteria.

Applicable Criteria and Related Research:

--'U.S. Public Power Peer Study Addendum 'February 2014' (Feb. 7, 2014);

--'U.S. Public Power Peer Study -- June 2013' (June 13, 2013);

--'U.S. Public Power Rating Criteria' (Dec. 18, 2012);

--'Rating U.S. Public Finance Short-Term Debt' (Dec. 9, 2013).

Applicable Criteria and Related Research:

U.S. Public Power Peer Study Addendum -- February 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735601

U.S. Public Power Peer Study Addendum -- June 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710641

U.S. Public Power Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696027

Rating U.S. Public Finance Short-Term Debt

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724680

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=820409

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst:

Alan Spen, +1-212-908-0594

Senior Director

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst:

Dennis Pidherny, +1-212-908-0738

Managing Director

or

Committee Chairperson:

Chris Hessenthaler, +1-212-908-0773

Senior Director

or

Media Relations:

Elizabeth Fogerty, +1-212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Business Wire


Story Tools